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Or, should at least check if it supports MD5 passwords, and use that mode when available.

A better solution would be to use MD5 internally. The only downside to that is that people who are used to giving the crypted password as an argument to the password command, will find it no longer works the way it used to (perhaps we should disable that form, unless an -m option is also provided, or perhaps accept them and in that case fall back on crypt).

Could consider using gnulib's MD5 algorithm. If we go that route, though, integrating gnulib with screen would need to wait until after 4.1.0 is released.